@techreport{NBERw6543,
title = "Forward-Looking Rules for Monetary Policy",
author = "Andrew G. Haldane and Nicoletta Batini",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "6543",
year = "1998",
month = "May",
doi = {10.3386/w6543},
URL = "http://www.nber.org/papers/w6543",
abstract = {This paper evaluates a class of simple monetary policy rules which feed back from explicit forecasts of future inflation - inflation forecast-based (IFB) rules. These rules aim to mimic current monetary policy practices among the inflation-targeting countries, where policy decisions are based on inflation forecasts. The rules themselves are evaluated using simulations from a small, rational expectations, open-economy macro-model. IFB rules are found to perform well in comparison with other simple rules, such as the Taylor rule. The reasons for this are: first, because they embody the lags in monetary transmission, aligning explicitly the control and the feedback variables of the policymaker; second, because IFB rules are capable of smoothing output by as much as is possible with rules which target output directly - for example, through variations in the forecast horizon; and third, because IFB rules implicitly condition on all state variables, and thus are information-efficient. For these reasons, inflation-targeting rules with an explicitly forward-looking dimension are found to take us within reach of the fully-optimal rule.},
}